Opinion  

Good luck to Dr Altmann - she has her work cut out

Ros Altmann takes up the role of pension minister at a challenging time.

She is extremely consumer-focused and has a deep understanding of the industry. Her main concern is likely to be consumer protection in the wake of the radical reforms we have seen.

Aside from shepherding existing reforms she will no doubt be keen to impose her own ideas.

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Her previous contact with government saw her as an adviser to Number 10 during Tony Blair’s tenure as prime minister. On that occasion she hit the immovable object of Gordon Brown, who as chancellor opposed any radical reform, whereas George Osborne has proven to be a reformer.

In 2002 – admittedly 13 years ago – she published a paper called Beyond Tax Relief – a new savings incentive framework. This suggested tax relief was “regressive” and “is not encouraging the majority of the population to save”.

She also noted tax relief was “costing the exchequer huge amounts of money which should be redistributed to provide better incentives to those who need them most on middle and low incomes”.

So could reform of tax relief get the thumbs-up?

Scrapping the current system in favour of top-ups – perhaps 30p for every £1 contributed – could prove attractive if it could be shown both to benefit basic rate taxpayers and cut the total pensions tax relief bill, which came to £34.3 billion in 2013/14.

One area I hope she takes an interest in is charges on older personal pensions. Many are wholly unjustifiable in the modern world but continue to be imposed on those with old pensions.

It is time that these were swept away wholesale and replaced with modern, simpler, lower alternatives.

Dr Altmann could also take a look at the gulf between the retirement income that can be achieved by defined benefit and defined contribution schemes.

The current 20-times salary calculation used to derive a value for DB pensions looks far too generous based on the income that could be purchased by a DC scheme.

But rather than just alter this calculation, a fairer solution would be to scrap the planned cut in the lifetime allowance.

Another issue which successive pensions ministers have failed to tackle is MPs’ own pensions. As an outsider, would Dr Altmann dare to put this issue on the table?

There can be no justification for MPs to receive gold-plated DB pensions, subsidised by taxpayers, while most of their constituents make do with DC pensions built from their own savings.

On top of these questions she must supervise the creation of a second-hand annuity market.

And then there is a need to give a hefty nudge to firms which are proving less than helpful to clients who wish to access their pension savings.

It promises to be a busy brief. I hope David Cameron allows Dr Altmann to serve a long tenure in the post so she can complete the task of building a pension system fit for the 21st century.